ii view: Croda reports a record first half

This chemicals maker enjoyed improving demand across all regions and sectors. Buy, sell or hold?

First-half results to 30 June

• Revenue up 39% to £934 million
• Adjusted pre-tax profit up 50% to £229.5 million
• Interim dividend up 10% to 43.5p per share

Guidance:

• Expects underlying growth across all sectors to continue in the second half
• Now expects 2021 full-year adjusted pre-tax profit to be significantly ahead of current expectations

Chief executive Steve Foots said:“Our record first-half performance reflects the impact of our strategic acceleration and investments, supported by improving customer demand across all regions and sectors. 

“I am excited by Croda's increasing opportunities in emerging technology platforms and faster growth markets, where demand for sustainable solutions will drive our progress going forward. We are investing in organic and inorganic expansion, continuing our relentless innovation and focusing on sustainability across everything we do.”

ii round-up:

Speciality chemicals maker Croda (LSE:CRDA) today raised its full-year profit expectations as a recovery in demand across all sectors from the pandemic and recent acquisitions helped buoy its first-half performance. 

Revenue for the six months to the end of June rose by 39% to £934 million, with sales of ingredients to the consumer care industry up 46% year-over-year and sales to life sciences, including vaccine ingredients up by 61%. 

The combination of increased sales, acquisitions and an improved profit margin helped adjusted pre-tax profit climb by 50% to a first-half record of £229.5 million.

Croda shares rose by more than 6% in UK trading, leaving the share price at double the low reached during pandemic market lows back in March 2020. Shares for smaller rivals Synthomer (LSE:SYNT) and Elementis (LSE:ELM) are both up by over 165% over the same time. 

Management pointed to its expectations for adjusted pre-tax profit to be significantly ahead of current forecasts. Broker UBS now expects double-digit upgrades to the current consensus analyst estimate of full-year adjusted operating profit of £412 million.

Full-year sales to pharmaceutical customer Pfizer (NYSE:PFE) were raised to around $200 million from a previous $125 million. 

Croda previously announced a strategic review of its industrial-oriented performance technologies business. It continues to move towards becoming a pure-play consumer facing ingredients company.

The interim dividend was raised by 10% year-over-year to 43.5p per share. 

ii view:

In its last full financial year, sales of chemicals to the personal care industry generated its biggest slug of sales at just over a third, followed by performance technologies at round 30% and life science sales at just under 29%. Industrial chemical sales accounted for the balance. The US provides its largest marketplace at around a quarter of sales. 

For investors, a forecast one-year price earnings (PE) ratio above both the three and 10-year averages suggests the shares are not obviously cheap.

Broader concerns regarding the impact of many chemicals on the environment also warrant consideration. But a track record of 22 consecutive years of increasing the value of its dividend payments is enviable.

Special dividends have also been paid occasionally and its diversity of both business type and geographical location also adds to its appeal. In all, while market dips may provide better buying opportunities, we believe this UK chemicals company remains worthy of long-term investor support. 

Positives: 

• A diverse product and customer base
• A progressive dividend policy 

Negatives:

• Environmental concerns
• A historic dividend yield below UK chemical company rivals

The average rating of stock market analysts:

Strong hold.